THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
Case No 448/02
REPORTABLE
PRICE WATERHOUSE COOPERS INC FIRST APPELLANT
HOEK WIEHAHN SECOND APPELLANT
WIEHAHN MEYERNEL THIRD APPELLANT
PRICE WATERHOUSE MEYERNEL FOURTH APPELLANT
PRICE WATERHOUSE FIFTH APPELLANT
and
NATIONAL POTATO CO-OPERATIVE LTD RESPONDENT
Before: Harms, Cameron, Conradie, Lewis JJA and Southwood AJA
Heard: 11 May 2004
Delivered: 1 June 2004
Summary: Champerty – an agreement in terms of which a person provides a
litigant with funds to litigate in return for a share of the proceeds of the
litigation is not contrary to public policy or void – illegality of such
agreement not a defence in the litigation – courts empowered to prevent
abuse of process despite right of access in s 34 of Constitution –
special order of costs against attorney ignoring agreements about
record.
__________________________________________________________
JUDGMENT
__________________________________________________________
SOUTHWOOD AJA
2
[1] The question which arises in th is appeal is whether an alleged
champertous agreement between the respondent Co-operative (the
plaintiff in the court below) and a th ird party to finance the respondent’s
action against a firm of accountants, the appellants (the defendants in the
court below) may be relied upon by the appellants as a defence to the
respondent’s claim. In this judgmen t, I shall refer to the appellants,
individually and collectively, as ‘Price Waterhouse’ and to the respondent
as ‘the Co-operative’.
[2] The salient facts as they em erged from the Co-operative’s evidence
(Price Waterhouse did not tender any) are as follows: The Co-operative is
a primary agricultural co-operative registered in terms of the Co-
operatives Act, No 91 of 1981. Du ring 1997 the Co-operative appointed
Collett, Du Toit & Associates (Pty) Ltd (‘CDA’) to investigate certain
irregularities allegedly committed by the Co-operative’s then general
manager, Mr Boonzaaier. Mr David Collett, a chartered accountant, was
to conduct the investigation for CDA.
[3] Late in 1997, CDA submitted a draft preliminary re port to the Co-
operative’s board of directors. In this report Collett listed the irregularities
which he had found and ex pressed the view that Mr Boonzaaier was
heavily involved in the commission of these irregularities. The report also
referred to other matters which, in Collett’s opinion, should have been
3
detected and reported by the auditor. In November 1997, and apparently
because of this report, Price Wa terhouse resigned as the Co-operative’s
auditor at the annual general meeting.
[4] CDA continued to investigate t he irregularities but by April 1998
the focus of the investigation had changed to the viability of a claim
against Price Waterhouse. On 27 March 1998 Collett gave his findings to
a senior advocate and requested him to furnish an opinion on the Co-
operative’s prospects of success if it were to institute an action against
Price Waterhouse.
[5] The cost of CDA’s investigatio n put a strain on the Co-operative’s
financial position and the Co-operat ive’s management advised the board
not to proceed with the investigat ion. The board chose instead to
investigate alternative means of financ ing the litigation. Its initial proposal
was to find a third party to finance the litigation in exchange for a share of
the proceeds of a successful action . The proposal contemplated that the
third party would contribute an amount of R1,5 million to the cost of
prosecuting the action and the th ird party and the Co-operative would
share the proceeds of a successful claim.
[6] On 17 April 1998, after consul ting a number of the Co-operative’s
members who apparently supported th e action contemplated, the Co-
operative’s board of directors resolve d to sell the Co-operative’s claim
4
against Price Waterhouse to Unitrade 40 (Pty) Ltd (whi ch later changed
its name to Farmers Indemnity Fund (Pty) Ltd and will henceforth be
referred to as ‘FIF’). FIF had been incorporated on 29 October 1997 as a
shelf company. From 30 October 1997 until 13 May 1998 FIF’s 100
shares were held by the Gerne Trust of which Mr Buitendag, the Co-
operative’s then attorney, and the Co-operative’ s present attorney of
record, was the beneficiary.
[7] On 13 May 1998 the Co-operative entered into a written agreement
(the ‘sale agreement’) with FIF in terms of which it sold its right, title and
interest in the claim against Price Waterhouse to FIF for 50 per cent of
the gross proceeds of a su ccessful claim or settlement of the claim. The
agreement recorded that as at 31 March 1998 the Co-operative had
already contributed an amount of R1,1 m illion to pay for legal advice and
the cost of CDA’s investigation and th at it would be liable for all costs
incurred up to 30 April 1998. The parties agreed that the Co-operative’s
contribution would be deemed to be R1 ,5 million and that FIF also would
contribute R1,5 million to pay for the costs of the investigation, the legal
costs and the expert’s fees and qualifying expenses necessary to
institute the action against Pric e Waterhouse and bring the claim to
finality. The parties also agreed that FIF would be liable for costs incurred
after 1 May 1998, but that if t he costs incurred after 1 May 1998
5
exceeded R1,5 million, the additiona l costs would be borne equally by
FIF and the Co-operative.
[8] The preamble to the sale agreem ent recorded, and FIF and the Co-
operative pertinently agreed, that the Co-operative was selling its claim to
FIF because it was not able to financ e the litigation contemplated against
Price Waterhouse and regarded the sa le as an alternative method of
financing the action.
[9] In the sale agreement the C o-operative and FIF also agreed how
the shares in FIF were to be held . Members of the Co-operative were to
be entitled to take up one third of the shares, Euro-Africa Investments
(Pty) Ltd (‘Euro-Africa’), a company controlled by a financier, Mr P S
Schledorn, was to be entitled to ta ke up one third of the shares and
members of the Co-operative or other persons would be entitled to take
up the remaining one third of the sha res on a ‘first come, first served’
basis. If the Co-operative’s members di d not take up their allotted one
third of the shares within 30 days of signature of the agreement the
remaining shares could be taken up by any ot her person or body on a
‘first come, first served’ basis.
[10] The sale agreement provided that initially FIF’s board would consist
of four directors: one appointed by t he Co-operative; one by Euro-Africa,
one was to be a member of the Co-operative and one was to be
6
appointed by the shareholders taking up the remaining one third of the
shares. The first four directors were Mr D J Pieterse (appointed by the
Co-operative – also its ch airman); Mr B C J van Rensburg (a member of
the Co-operative – also its vice-cha irman); Mr P S Schledorn (appointed
by Euro-Africa) and Mr W J A Labusch agne (on behalf of the first come,
first served shareholders – also a member of the Co-operative’s board).
[11] The agreement recorded that FIF purchased the claim on the
strength of research d one in connection with the claim, that the claim
appears from the Co-operat ive’s records and that FIF would prosecute
the claim at its own risk. The pa rties agreed that the Co-operative would
co-operate fully with FIF for the purposes of the action and that FIF would
appoint the professional team to conduct the litigation.
[12] On 12 May 1998 Mr Buitendag re signed as director of FIF and
Messrs Pieterse, Van Rensburg and Labuschagne were appointed as
directors. On 14 May 1998 FIF chang ed its main object and principal
business to the acquisition of claims for litigation. It gave as the reason
for this change that it would enable FIF to acquire a claim from the Co-
operative for litigation.
[13] On 17 April 1998 FIF increased its authorised share capital of 1 000
one rand shares to 2 000 one rand shares. On 14 May 1998 FIF further
increased its authorised share capita l to 2 000 000 one rand shares. FIF
7
did this so that it could issue share s to obtain the funds to finance the
litigation.
[14] In May 1998, the Co-operative’s members were invited to subscribe
for shares in FIF. In August 1998, 1 664 400 sh ares were issued to 15
shareholders. According to the documents in the record these included
four of the Co-operative’s members, Mr Pieterse (the chairman – 100 000
shares); Mr Van Rensburg (the vic e-chairman – 185 000 shares); Mr J D
Van der Merwe (a director – 5 000 sh ares) and Mr G J Van Rooyen (100
000 shares). Euro-Africa (which la ter became NAK Financial Assistance
(Pty) Ltd) took up 750 000 shares.
[15] The Co-operative’s board wa s still concerned about the
arrangements made to finance the acti on and decided to obtain legal
advice on the question. In December 1998 a senior advocate advised the
Co-operative’s attorney, Mr Buitendag, that the sale agreement was
champertous, accordingly against public policy and invalid a nd that it did
not achieve its objective. He advi sed Mr Buitendag t hat the agreement
should be cancelled and the claim ceded back to t he Co-operative; that
the claim should remain with t he Co-operative; and that the Co-operative
should be the plaintiff in the acti on. He also advised that a new
agreement should be entered into in terms of which FIF would finance
the litigation in return for 50 per cent of the proc eeds of the litigation. He
8
expressed the view that although th e suggested arrangement could be a
pactum de quota litis it would not necessarily be objectionable. However,
he warned that the prop osed arrangement could be attacked, apparently
because it might be seen to be of a ‘gambling character’. His concern
was that if the Co-operative’s ac tion failed, FIF would get nothing,
whereas if it succeeded FI F would get 50 per cent of the proceeds. His
view was that Price Waterhouse would not be able to rely on the
arrangement as a defence (to an ac tion instituted by the Co-operative)
but that the agreement could create problems if a dispute arose between
FIF and the Co-operative. During Fe bruary 1999 this advice was
conveyed to the Co-operative’s board, which was also informed that in
accordance with the advice new agreements were being prepared to
protect the investors’ interests.
[16] In October 1999 the Co-operat ive and FIF entered into two
agreements: an agreement in terms of which they cancelled the sale
agreement and an agreement in terms of which FIF undertook to provide
financial assistance to the Co-op erative to enable the Co-operative to
pursue its claim against Price Water house (‘the assistance agreement’).
In the assistance agreement the part ies recorded that the estimated cost
of litigation to recover the claim amou nted to R1,5 million; FIF undertook
to provide assistance to the Co-ope rative in pursuing the claim against
Price Waterhouse and as part of t he assistance would contribute R1,5
9
million as from 1 April 1998; the partie s agreed that if t he litigation costs
exceeded R1,5 million they would bea r the excess equally; FIF’s board
would determine the funding requirements for litigation costs in excess of
the R1,5 million and the amount, date and method of contribution (in
excess of the R1,5 million) to be made by FIF’s shareholders and the Co-
operative. The assistance agreement further prov ided that in return the
Co-operative would pay to FIF 45 per cent of the proce eds derived from
the claim after certain agreed amount s had been deducted. As security
for this obligation t he Co-operative and FIF entered into an ancillary
agreement in terms of which the Co-operative ceded to FIF 45 per cent of
its right to the proceeds of the cl aim. The parties also entered into a
further ancillary agreement in terms of which the Co-operative
conditionally ceded to FIF its clai m against Price Waterhouse. This
cession would take effect in the event, inter alia, of the Co-operative not
pursuing the claim to final judgment or not being able to do so. If this
happened FIF undertook to pay to the Co-operative 20 per cent of the
proceeds of the claim after deducti ng the litigation and other costs
pertaining to the recovery of the claim.
[17] Various provisions of the a ssistance agreement emphasise FIF’s
interest in the claim and the proceeds of the claim. The Co-operative was
not permitted to sell or cede its right, title and interest in the claim to any
third party without the written co nsent of FIF and the Co-operative was
10
not permitted to accept an offer of settlement or make a counter-offer
without consulting FIF. There were also detailed provisions for the
payment to FIF of its share of the proceeds.
[18] CDA’s investigation revealed t hat the damages rec overable by the
Co-operative from Price Waterhouse c ould be very large. When the Co-
operative first sold the claim to FIF the damages recoverable were
thought to exceed R100 million.
[19] During November 1999 the Co-operative instituted an action
against Price Waterhouse in the Pretoria High Court claiming damages in
the sum of R283 490 742, 19 on the grounds of breach of contract. It
alleged that during the period 198 3 to 1998 Price Wa terhouse breached
the contracts in terms of which they acted as the Co-operative’s auditors
by failing to carry out the audits properly in accordance with the relevant
common law and statutory rules. Lat er, the Co-operative increased the
amount claimed to R353 890 045,72.
[20] In 2002, the matter came to trial before Hart zenberg J. During
cross-examination of the first wit ness Price Waterhouse were granted an
amendment to their plea and the Co-oper ative was permitted to file a
replication in answer. The amendment to the plea raised two issues: first,
that during 1998 the C o-operative had ceded its right, title and interest in
the claim against Price Waterhouse to FIF, that the purported
11
cancellation of this cession was invalid and accordingly that Price
Waterhouse had no locus standi in respect of the claim; second, that the
Co-operative was prosecuting the action pursuant to an agreement which
was champertous and contrary to pub lic policy and accordingly that the
Co-operative’s claim should not be upheld. The Co-operative’s reply was
that the parties to the cession of th e Co-operative’s claim had effectively
cancelled the cession a nd that the second agreem ent in terms of which
the Co-operative arranged for the ac tion to be financed was not
champertous and contrary to pubic polic y. The trial proceeded on these
limited issues.
[21] The court below found against Price Waterhouse on both issues
raised in the amendment to the plea. Although Price Waterhouse
appealed against the whole judgment their counsel did not make any
submissions on the first issue. It is accordingly not necessary to consider
this issue further. What remain s to be considered is whether the
arrangements made by the Co-operative to finance its litigation against
Price Waterhouse are contrary to public policy and, if so, whether this will
constitute a defence to the Co-operative’s claim.
[22] The issue has three separate el ements. First, w hat is the public
policy regarding the financial support of a litigant by a stranger to the
litigation. Second, whether an agreement in terms of which FIF undertook
12
to contribute funds to the Co-operat ive in return for a share of the
proceeds of the action is contrary to public policy and therefore void.
Third, whether that fact constitute s a defence to the Co-operative’s claim
against Price Waterhouse.
[23] At common law agreements that are contrary to public policy are
void and not enforceable. While public policy generally favours the
utmost freedom of contract it does take into account the necessity for
doing ‘simple justice between man and man’. Therefore, when a court
finds that an agreement is contrary to public poli cy it should not hesitate
to say so and refuse to enforce it. However, the court should exercise this
power only in cases where the improp riety of the t ransaction and the
element of public harm are manifest. It is an im portant consideration that
there be certainty about the validity of agreements and that this certainty
could be undermined by an arbitrary an d indiscriminate use of the power
to declare agreements cont rary to public policy (see Sasfin (Pty) Ltd v
Beukes 1989 (1) SA 1 (A) at 7I-J and 9A-C; Botha (now Griessel) and
another v Finanscredit (Pty) Ltd 1989 (3) SA 773 (A) at 782J-783B;
Brisley v Drotsky 2002 (4) SA 1 (SCA) para 94; Afrox Healthcare Bpk v
Strydom 2002 (6) SA 21 (SCA) para 8).
[24] What public policy is and when an agreement is contrary to public
policy are often difficult and content ious questions. Since the advent of
13
the Constitution public policy is root ed in the Constitution and the
fundamental values it enshrines ( Brisley v Drotsky supra para 91; Afrox
Healthcare Bpk v Strydom supra para 18). The fundamental values
enshrined in the Constitution and t he interests of the community or the
public are accordingly of the utmost im portance in relation to the concept
of public policy. Therefore an agreem ent will be regard ed as contrary to
public policy when it is clearly inimical to these constitutional values, or
the interests of the community, whether it be contrary to law or morality or
runs counter to social or economic expedience (Sasfin (Pty) Ltd v Beukes
supra at 8C-D; Botha (now Griessel) and another v Finanscredit (Pty) Ltd
supra at 782I-J). It is important to bear in mi nd that views about what
public policy entails are constantly evolving ( Magna Alloys and Research
(SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A) at 891H ) and the court must be
careful not to conclude t hat an agreement is contrary to public policy just
because some of its terms offend against its sense of propriety and
fairness (Sasfin (Pty) Ltd v Beukes supra at 9B-C). It is also important to
bear in mind that to decide whether an agreement is against public policy
a court must look at the tendency of the proposed transaction, not its
actually proved result ( Sasfin (Pty) Ltd v Beukes supra at 8G-9B;
Eastwood v Shepstone 1902 TS 294 at 302).
[25] The agreement in issue in t he present case is an agreement
between the Co-operative and FIF in terms of which FIF undertook to
14
provide the Co-operative with f unds to enable the Co-operative to
prosecute its case against Price Wate rhouse in return for forty five per
cent of the proceeds. Such agreements, called pacta de quota litis , were
known to Roman and Roman-Dutch law and have been looked upon with
disfavour ever since the days of th e Roman Empire. The reason for this
was that they were considered to encourage speculative litigation and
consequently amounted to an ab use of the legal process ( Wessels The
Law of Contract in South Africa 2 ed by AA Roberts vol 1 paras 510-511).
From the 19 th Century our law has often ref erred to such a contract as
‘maintenance and champerty’ and adopted some of the rules of English
law without attempting to reconcile these rules with the principles of
Roman-Dutch law. In English law, maintenance and champerty are two
distinct concepts. Maintenance is t he improper assistance by one person
of litigation conducted by another, in which the former has no legitimate
interest, without just cause or ex cuse. Champerty is an aggravated form
of maintenance and occurs wh en the person maintaining another
stipulates for a share of the pro ceeds of the action or suit. ( Trendtex
Trading Corp v Crédit Suisse [1980] 3 ALL ER 721 (CA) at 749.) Not all
such agreements were objectionable, but when they were found to be
contrary to public policy, they were regarded as illegal and
unenforceable.
15
[26] A number of cases decided in S outh Africa in the last years of
the 19th and the early part of the 20 th Century show that the courts
took an uncompromising view of agreements which I shall call
champertous (ie any agreement w hereby an outsider provided
finance to enable a party to litigat e in return for a share of the
proceeds of the action if that party was successful or any agreement
whereby a party was said to ‘t raffic’, gamble or speculate in
litigation), and refused to entert ain litigation following on such
agreements or to en force them (see Green v De Villiers, Dr Leyds,
N.O., and The Rand Exploring Syndicate [1895] 2 OR 289 at 293-
294; Thomas Hugo and Fred J Möll er NO v The Transvaal Loan,
Finance and Mortgage Company [1894] 2 OR 336 at 339-341;
Schweizer’s Claimholders’ Rights Syndicate, Limited v The Rand
Exploring Syndicate, Limited [1896] 2 OR 140 at 144-5; C.V.J.J.
Platteau v S.P. Grobler [1897] 4 OR 389 at 394-396; Campbell v
Welverdiend Diamonds, Ltd 1930 TPD 287 at 292-4).
[27] However, it is clear t hat the courts acknowledged one
exception. It was accepted that if any one, in good faith, gave
financial assistance to a poor su itor and thereby helped him to
prosecute an action in return for a reasonable recompense or
interest in the suit, the agreement would not be unlawful or void (per
Kotze CJ in Thomas Hugo and Fred J Möller NO v The Transvaal
16
Loan, Finance and Mortgage Company supra at 340: Schweizer’s
Claimholders’ Rights Syndicate Limited v The Rand Exploring
Syndicate, Limited supra at 144: Patz v Salzburg 1907 TS 526 at
527). In a number of these early cases the courts adopted and
applied statements pertaining to maintenance and champerty made
by the Privy Council in Ram Coomar Coondoo and another v
Chunder Canto Mookerjee 1886 2 AC 186 at 210. The Privy Council
said that –
‘a fair agreement to supply funds to carry on a suit in consideration of having a
share of the property, if recovered, ought not to be regarded as being per se
opposed to public policy. Indeed, cases may be easily supposed in which it
would be in furtherance of right and justice and necessary to resist oppression,
that a suitor who had a ju st title to property, and no means except the property
itself, should be assisted in this manner’.
However, it warned –
‘that agreements of this kind ought to be carefully watched, and when found to
be extortionate and unconscionable, so as to be inequitable against the party;
or to be made not with the bona fide object of assisting a claim believed to be
just, and of obtaining a reasonable recompense ther efor, but for improper
objects, as for the purpose of gambling in litigation, or of injuring or oppressing
others by abetting and encouraging unrighteous suits, so as to be contrary to
public policy – effect ought not to be given to them’.
(See Platteau v Grobler supra at 394-395; Thomas Hugo and Fred J
Möller NO v The Transvaal Loan , Finance and Mortgage Company
17
supra at 340; Schweizer’s Claimholders’ Rights Syndicate, Limited v
The Rand Exploring Syndicate Limited supra at 144-5; Patz v
Salzburg supra at 527-528; Campbell v Welverdiend Diamonds, Ltd
supra at 290-1.) This was early reco gnition that in a case where an
injustice would be done if a lit igant was not given financial
assistance to conduct his case a champertous arrangement would
not be contrary to public policy.
[28] Although the number of rep orted cases concerned with
champertous agreements diminished, courts have still adhered to
the view that generally they are unla wful and that litigation pursuant
to such agreements should not be entertained (see eg Lekeur v
Santam Insurance Co Ltd 1969 (3) SA 1 (C); Goodgold Jewellery
(Pty) Ltd v Brevadau CC 1992 (4) SA 474 (W)).
[29] The reasons for champertous agreements being considered to
be contrary to public policy have not, so far, been reconsidered or
tested by the courts in the light of changed circumstances and, in
particular, in the light of the Constitution. It is instructive to have
regard first to the position in English law.
[30] English common law condemned champerty out of a concern
for the integrity of the judicial system; the fear that champertous
agreements may give rise to abus es such as the inflation of
18
damages; the suppressing of ev idence and th e suborning of
witnesses (Re Trepca Mines Ltd [1962] 3 ALL ER 351 at 355: Giles
v Thompson and related appeals [1993] 3 ALL ER 321 (CA and HL)
at 331g-j per Steyn LJ).
[31] Notwithstanding this concern and fear the law of maintenance
and champerty has undergone many changes, pa rticularly in the
course of the 20th Century. In Giles v Thompson and related appeals
supra the Court of Appeal and the Hous e of Lords dealt with these
changes in some detail (per Steyn LJ in the Court of Appeal at 328a-
333b and per Lord Mustill in the House of Lords at 350h-351f and
360a-h).
[32] The law of maintenance an d champerty devel oped out of a
need to protect the system of civil justice; and as the civil justice
system has developed its own inne r strength the need for the rules
for maintenance and ch amperty has diminished – if not entirely
disappeared.
[33] Lord Mustill observes that in mediaeval times the mechanisms
of justice lacked the internal st rength to resist the oppression of
private individuals through su its fomented and sustained by
unscrupulous men of power. Champerty was particularly vicious
because the purchase of a share in litigation presented an obvious
19
temptation to the suborning of justices and witnesses and the
exploitation of worthless clai ms which the defendant lacked the
resources and influence to wi thstand. Two important factors
contributed to the growth of these abuses; first, there was no
independent judiciary (‘detachment and disinterestedness was not
the hallmark of the mediaeval judici ary’) and second, the civil justice
system was not developed and was not capable of exposing abuses
of legal procedure and giving effect ive redress. To deal with these
abuses a number of statutes created the offences of maintenance
and champerty. Gradually these conditions disappeared and by the
beginning of the 19 th Century England had an independent judiciary
(‘the cold neutrality of the impartial judge be came the established
convention’) and after the procedural reforms of the 19 th Century
there was an effective civil justic e system. Despite these changes
the offences and torts of maint enance and champerty lingered on in
atrophied form for more than a century after an y public interest in
preserving them had disappeared.
[34] In 1967 after an investi gation and recommendation by the
United Kingdom Law Commission ( Proposals for Reform of the Law
relating to Maintenance and Champerty : Law Com no 7) the
Criminal Law Act of 1967 was passed. In terms of s 13(1) and 14(1)
of the Act the offences and tort s of maintenance and champerty
20
were abolished but s 14(2) preserved the status quo regarding
contracts. It provided expressly that the abolition of criminal and civil
liability for maintenance and cham perty would not a ffect any rule of
that law as to the cases in whic h a contract is to be treated as
contrary to public policy or otherwise illegal.
[35] The United Kingdom Law Co mmission also considered the
effect of illegality of champertou s agreements on the practice of
solicitors. It stated that the quest ion whether solicitors should be
permitted to enter into conti ngency fee agreements (involving
payment to the solicitor of an a greed percentage of compensation
recovered) required further stud y. The public policy condemning
contingency fee agreements then became a matter for public
debate.
[36] In 1989 the United Kingdom government published a Green
Paper on Contingency Fees (Cm 571) and after the consultation
process proceeded to cons ider (a) the intro duction in England and
Wales of speculative actions on the Scottish model, that is on a ‘no
win, no fees’ basis and (b) the validation of agreements for an uplift
(ie increase) in percentage terms in the costs payable, to encourage
lawyers to undertake speculative actions, such uplift being unrelated
to the amount of the damages or property recovered. This was
21
followed by a White Paper ( Legal Services: A Framework for the
Future (Cm 740)) in which the gove rnment proposed the removal of
the prohibition on these fee ar rangements in a ll cases except
criminal and family proceedings.
[37] These proposals led to the enac tment of s 58 of the United
Kingdom Courts and Legal Servic es Act 1990. This permitted
speculative actions in accordance with the Scottish practice and
rendered enforceable, subject to certain conditions, a conditional fee
agreement. The most important condition was the strict regulation of
the percentage whereby the fee was to be increased. The Lord
Chancellor was to be given the pow er to regulate the increase. At
the time of the judgment the Lord Chancellor had not yet exercised
that power.
[38] The importance of this change was emphasised by Steyn LJ in
Giles v Thompson and related appeals supra at 331d-f. He pointed
out that the ability to recover fees beyond what was otherwise
reasonable was intended to be an in centive to lawyers to undertake
speculative actions. Such agreement s were still unlawful in the
absence of the Lord C hancellor’s order. Nevertheless it was a clear
departure from the rationale of t he common law rule that such
agreements cause the duty and interest of solicitors to conflict, with
22
a resultant risk of abuse of legal procedure. It clearly recognised that
the abuses associated with champerty are not the inevitable result of
all varieties of contingency f ee agreements. This, he said, was
cogent evidence of a change of public policy.
[39] These developments in Eng lish law are mirrored in South
African law. The judiciary is independent. Its independence is
guaranteed by the Constitu tion. The civil justice system is regulated
by the state and has the necess ary mechanisms to withstand the
abuses perceived to flow from champertous agreements. There are
trained and disciplined legal profes sionals who are subject to strong
ethical codes. And ther e are pre-trial procedure s such as discovery
to ensure that evidence is not fabricated or suppressed. There is
also the trial itself where the veracity of the evidence can be properly
tested. There is also the cost of losing. This is a great disincentive to
the dishonest litigant.
[40] After the South African Law Commission investigated and
reported on the question (South Af rican Law Commission Project 93
‘Speculative and Contingency Fees ’ November 1996: the
Commission recommended that contingency fee agreements should
be legalized in South African la w and that common law prohibitions
on such fees should be remove d), our legislature followed the
23
English example of permitting contingency fee arrangements – ‘no
win, no fees’ and increased fees in case of success – but subject to
strict controls. As in England this represented a watershed in public
policy and was brought about by the view that it is in the public
interest that litigants be able to take their justiciable disputes to court
for adjudication. (A system of contingency fees ‘can contribute
significantly to promote access to the courts’ and ‘such a system is
desirable’ – Summary of Recommendati ons and Draft Bill, SA Law
Commission Project 93.)
[41] The Contingency Fees Act 66 of 1997 (which came into
operation on 23 April 1999), provid es for two forms of contingency
fee agreements which attorneys and advocates may enter into with
their clients. The first, is a ‘no win, no fees’ agr eement (s 2(1)(a))
and the second is an agreement in terms of which the legal
practitioner is entitled to fees highe r than the normal fee if the client
is successful (s 2(1)(b)). The second type of agreement is subject to
limitations. Higher fees may not e xceed the normal fe es of the legal
practitioner by more than 100 per cent and in the case of claims
sounding in money this fee may not exceed 25 per cent of the total
amount awarded or any amount obtained by the client in
consequence of the pro ceedings, excluding cost s (s 2(2)). The Act
has detailed requirements for the agreement (s 3), the procedure to
24
be followed when a matter is settled (s 4) and gives the client a right
of review (s 5). The professional controlling bodies may make rules
which they deem necessary to give effect to the Act (s 6) and the
Minister of Justice may make regulations for implementing and
monitoring the provisions of the Act (s 7). The clear intention is that
contingency fees be carefully c ontrolled. The Act was enacted to
legitimise contingency fee agre ements between legal practitioners
and their clients which would otherwise be prohibited by the
common law. Any contingency fe e agreement between such parties
which is not covered by the Act is therefore illegal. What is of
significance, however, is that by permitting ‘no win, no fees’
agreements the legislature has made speculativ e litigation possible.
And by permitting increased fee agreements th e legislature has
made it possible for le gal practitioners to receive part of the
proceeds of the action.
[42] As in England, this Act is designed to en courage legal
practitioners to undertake speculativ e actions for their clients. The
legislature was obviously of the vi ew that the conflict between the
duty and interests of le gal practitioners woul d not lead to an abuse
of legal procedure. It clearly considere d that it is better that people
be able to take their disputes to co urt in this way rather than not at
all.
25
[43] In my view this approach is consistent with the right enshrined
in s 34 of the Constitution: ev eryone has the right to have any
dispute that can be resolved by t he application of law decided in a
fair public hearing before a co urt, or, where appropriate, another
independent and impartial tribunal or forum. On a number of
occasions the Constitutional C ourt has emphasised the importance
of this right: it is of cardina l importance and requires active
protection and courts ha ve a duty to protect bona fide litigants
(Beinash and another v Ernst & Young and others 1999 (2) SA 116
(CC) para 17); the ‘untrammelled ac cess to the courts is also a
fundamental right of every indivi dual in an open and democratic
society based on human dignit y, equality and freedom’ ( Moise v
Greater Germiston Transitional Local Council: Minister of Justice
and Constitutional Development Intervening (Women’s Legal Centre
as Amicus Curiae) 2001 (4) SA 491 (CC) para 23); it is the
foundation for stability of an orderl y society and it ‘ensures the
peaceful, regulated and institutio nalised mechanisms to resolve
disputes, without resorting to self help’: it is ‘a bulwark against
vigilantism, and the chaos and anarchy which it causes’ ( Chief
Lesapo v North-west Agricultural Bank and another 2000 (1) SA 409
(CC) para 22); it is fundamental to a democratic society that
cherishes the rule of law ( First National Bank of South Africa Ltd v
26
Land and Agricultural Bank of South Africa and others ; Sheard v
Land and Agricultural Bank of South Africa and another 2000 (3) SA
626 (CC) para 6).
[44] In my view, upholding agreem ents between a litigant and a
third party who finances the litigat ion for reward is also consistent
with the constitutional values underlining freedom of contract.
Cameron JA summarised the position in Brisley v Drotsky 2002 (4)
SA 1 (SCA) para 94 –
‘(T)he constitutional values of digni ty, equality and freedom require that the
Courts approach their task of striking down contracts or declining to enforce
them with perceptive restraint … cont ractual autonomy is part of freedom.
Shorn of its obscene excesses, cont ractual autonomy informs also the
constitutional value of dignity.’
(See also Afrox Healthcare Bpk v Strydom 2002 (6) SA 21 (SCA)
paras 22-23.)
[45] The legislature has expressly recognised that the civil justice
system is strong enough to withstand the abuses which could arise
as a result of contingen cy fee agreements between legal
practitioners and their clients a nd it has made such agreements
legal within carefully circumscri bed limits and subject to regulation
by the professions’ controlling bodi es and the Minister of Justice.
This is a significant change in view of the fact that dishonest legal
27
practitioners conducting the lawsui t would be in the best possible
position to manipulate the facts to get a favourable outcome in the
suit.
[46] In my view it must also be recognised that the civil justice
system is strong enough to withst and the perceived abuses which
could arise if civil litigation is made possible by financial support
given by persons who provide such support in return for a share of
the proceeds. Accordingly it must be held that an agreement in
terms of which a stranger to a lawsuit advances funds to a litigant on
condition that his remuneration, in case the litigant wins the action,
is to be part of the proceeds of the suit, is not contrary to public
policy. Price Waterhouse are ther efore not entitled to base a
defence on the assistance agreement.
[47] In the court below the case pro ceeded differently since both parties
accepted, as did the trial judge, t hat champertous agre ements are void.
In view of my conclusion, that assumption was erroneous. Because
Hartzenberg J found that the assistance agreement did not conflict with
public policy and was accordingly not unenforceable, it was not
necessary for him to consider w hether the invalidity of the agreement
would afford the respondent a defence. Since this question may arise in
28
cases where an attorney’s contingency fee agreement is unlawful I shall
deal with it.
[48] The fact that a litigant has entered into an unlawful agreement with
a third party to provide funds to finance his case is a matter extraneous to
the dispute between the litigant a nd the other party and is therefore
irrelevant to the issues arising in the dispute, w hatever the cause of
action. Accordingly, the illegality of the agreement between a plaintiff and
his legal representativ es cannot be a defence to the action (compare
Fouché v The Corporation of the London Assurance 1931 WLD 146 at
153; Lekeur v Santam Insurance Co Ltd 1969 (3) SA 1 (C) at 6D-F; Giles
v Thompson and related appeals supra at 336h-g (per Steyn LJ) 340d-
341a (per Gibson LJ), and 348j-349e (per Bingham MR)).
[49] Price Waterhouse referred, however, to cases decided in
South Africa where courts had non -suited plaintiffs because they
were being assisted in the litigation pursuant to a champertous
agreement, (see eg Thomas Hugo and Fred J Möller NO v The
Transvaal Loan, Finance and Mortgage Co [1894] 1 OR 336 at 340-
1; Green v De Villiers, Dr Leyds, NO and The Rand Exploring
Syndicate [1895] 2 OR 289 at 293-4; Schweizer’s Claimholders’
Rights Syndicate, Limited v The Rand Exploring Syndicate, Limited
[1896] 3 OR 140 at 144-5; Campbell v Welverdiend Diamonds, Ltd
29
1930 TPD 287 at 294). However, none of these cases explained
how the fact that the agreement between the third party and the
plaintiff was illegal could be a defence to the plaintiff’s claim against
the defendant, or where the court derived the power to dismiss or
refuse to entertain a plaintiff’s action on this ground. In my view
there was no basis for finding t hat the illegal agreements were a
defence or a ground for refusing to entertain the actions. These
cases were accordingly incorrec tly decided. Although based on
different grounds Hartzenberg J’s conclusion was therefore correct.
[50] An agreement in terms of which a person provides funds to
enable a litigant to pros ecute an action in retu rn for a share of the
proceeds may be relevant in the co ntext of abuse of process. It has
long been recognised in South Afri ca that a court is entitled to
protect itself and others against the abuse of its process (see
Western Assurance Co v Caldwell’s Trustee 1918 AD 262 at 271;
Corderoy v Union Government (Minister of Finance) 1918 AD 512 at
517; Hudson v Hudson and another 1927 AD 259 at 268; Beinash v
Wixley 1997 (3) SA 721 (A) at 734D; Brummer v Gorfil Brothers
Investments (Pty) Ltd en andere 1999 (3) SA 389 (SCA) at 412C-D),
but no all-embracing definition of ‘abuse of process’ has been
formulated. Frivolous or vexatious litigation has been held to be an
abuse of process (per Innes CJ in Western Assurance v Caldwell’s
30
Trustee supra at 271 and in Corderoy v Union Government (Minister
of Finance) supra at 517) and it has been said that ‘an attempt made
to use for ulterior purposes ma chinery devised for the better
administration of justice’ would co nstitute an abuse of the process
(Hudson v Hudson and another supra at 268). In general, legal
process is used properly when it is invoked for the vindication of
rights or the enforcement of just cl aims and it is abused when it is
diverted from its true course so as to serve extortion or oppression;
or to exert pressure so as to achieve an improper end. The mere
application of a particular court procedure for a purp ose other than
that for which it was primarily in tended is typical, but not complete
proof, of mala fides. In order to prove mala fides a further inference
that an improper result was in tended is requi red. Such an
application of a court procedure (for a purpose other than that for
which it was primarily intended) is therefore a charac teristic, rather
than a definition, of mala fides . Purpose or motive, even a
mischievous or malicious motive, is not in general a criteria for
unlawfulness or invalidity. An improper motive may however be a
factor where the abuse of court process is in issue. ( Brummer v
Gorfil Brothers Investm ents (Pty) Ltd en andere supra at 412I-J;
414I-J and 416B). Accordingly, a plaintiff who has no bona fide claim
but intends to use litigation to cause the defendant financial (or
31
other) prejudice will be abusing the process (see Beinash and
another v Ernst & Young and others 1999 (2) SA 116 (CC) para 13).
Nevertheless it is important to be ar in mind that courts of law are
open to all and it is only in exceptio nal cases that a court will close
its doors to anyone who wishes to prosecute an action (per Solomon
JA in Western Assurance Co v Caldwell’s Trustee 1918 AD 262 at
273-274). The importance of the right of access to courts enshrined
by section 34 of the Constituti on has already been referred to.
However, where a litigant abuses the process this right will be
restricted to protect and secure th e right of access for those with
bona fide disputes ( Beinash and another v Ernst & Young and
others supra para 17).
[51] In the present case, there is no suggestion that the Co-
operative’s claim is not bona fide . Before instituting the action the
Co-operative employed a chartered ac countant to investigate the
facts and appointed two senior coun sel to investigate and advise on
the law. It is highly probable th at the Co-operative would have
instituted the action against Price Waterhouse without the
assistance of FIF had the Co-operati ve been in a position to do so.
There is no suggestion that the Co-operative wishes to do more than
to recover damages for the breach of contract which it has alleged.
Clearly the position would be diffe rent if the Co-operative’s claim
32
was not bona fide and was brought simply to cause Price
Waterhouse embarrassment or financial harm.
[52] To summarise:
(1) an agreement in terms of wh ich a person provides a litigant
with funds to prosecute an acti on in return for a share of the
proceeds of the action is not contrary to public policy or void;
(2) the illegality of such an agreement or an attorney’s
contingency fee agreement would not be a defence in the action;
(3) litigation pursuant to such an agreement may constitute an
abuse of the process which in appropriate circumstances a court
may prevent notwithstanding a litigant’s right of access to the courts
enshrined in s 34 of the Constitution.
[53] Price Waterhouse’s appeal mu st therefore be dismissed.
COSTS
[54] Unfortunately it is necess ary to comment on the Co-operative’s
attorney’s attempts to supplement the record.
[55] For purposes of the tr ial the parties agreed t hat, in the absence of
objection, copies of documents could be used and that the documents
were what they purported to be. The parties also agreed that no
33
document would be admissible unl ess it had been referred to in
evidence.
[56] After leave to appeal was grant ed Price Waterhouse’s attorney,
Deneys Reitz, and the Co-operative’ s erstwhile attorney, MacRoberts,
agreed to restrict the record to the evidence relevant to the limited issues.
Deneys Reitz prepared the appeal reco rd and served it on MacRoberts
on 13 February 2003 and sh ortly thereafter lodged co pies of the record
with the registrar of this court.
[57] At the end of February 2003 the Co-operative terminated
MacRoberts’ mandate and on 16 A pril 2003 appointed Buitendag’s
Attorneys as its attorney. The Co-op erative had been in possession of
the record (then approximately 1 000 pages) since about 7 April 2003.
On 22 April 2003 Mr Buitendag of Buitendag’s Attorneys initiated
correspondence expressing his diss atisfaction with the record. Mr
Buitendag’s complaints related primarily to the accuracy of the record.
However he also complained that some documents had been wrongly
included or excluded. D eneys Reitz pointed out that the contents of the
record had been agreed upon with MacRoberts and that the minor errors
could be brought to the attention of the court in argument. Nevertheless
Deneys Reitz suggested that a meeting be held to resolve the problem. A
meeting was arranged for 23 June 2003.
34
[58] Prior to that meeting Deneys Reit z took steps to correct the errors
in the transcript and requested an exte nsion of the period in which Price
Waterhouse were to file their heads of argument. An order was made that
the period be extended to 31 July 2003 (on the assumption that the
parties had agreed on the record by not later than 30 June 2003) and
that, if no agreement was reached by 30 June 2003, either party was
entitled to approach the court for further directions or extensions.
[59] Despite reaching agreement on 23 June 2003 about the matters to
be rectified Mr Buitendag continued to express dissatisfaction about the
record. The basis for the complain t also shifted. He demanded that
certain documents which had not been handed in as exhibits be
incorporated. He said that certai n documents in the record created a
misleading impression because they had not been inc orporated in their
proper factual context, that Price Waterhouse’s legal representatives
withheld these facts from the court and that there was a duty on Price
Waterhouse’s legal representatives to place before this court all
documents relevant to the issues. Mr Buitendag contend ed that certain
documents obtained by Price Waterho use’s legal representatives by
means of subpoenas had not been disclosed to the court. Deneys Reitz
correctly responded that do cuments not referred to in evidence should
not be included. Deneys Reitz asked the registrar for a ruling on the
issue.
35
[60] On 23 August 2003 the court or dered Price Waterhouse to lodge
the agreed record within one month and directed that if the Co-operative
wished to add to the record it shoul d do so by lodging a supplementary
record and addressing the i ssue in its heads of argument. The court also
directed that an additional volume of all corresponde nce regarding the
issues around the record be lodged.
[61] Pursuant to the order Deneys Re itz prepared a volume containing
the correspondence (124 pages). Mr Buitendag was not satisfied with this
bundle of correspondence and prepared a bundle of correspondence and
a bundle of documents which he main tains should be included in the
record. The bundle of c orrespondence runs to 373 pages and fills three
volumes. It needlessly included ev ery letter in Price Waterhouse’s
bundle. The bundle of do cuments runs to 268 page s and also fills three
volumes.
[62] It is plain that the agreem ent about the documents and the
agreement about the record gov ern the contents of th e record filed. This
was not disputed by Mr Buitendag. He was entitled to insist on
compliance with these agreements but no more than that. The clear
purpose of the second a greement was to limit the appeal to what was
essential. Neither party was free to disregard the agreements and
attempt to place before this cour t documents which had not been placed
36
before the trial court. Mr Buitenda g apparently thought that he was
entitled to do so. Not only did he attempt to have other documents
included in the record but he also fi led affidavits dealing with these
documents and what h ad been given to Price Waterhouse’s legal
representatives. The result is another seven volumes of record, largely
irrelevant, and of no use to this c ourt. This is due to Mr Buitendag’s
obstinate adherence to a clearly erroneous view.
[63] The additional seven volumes have imposed upon the members of
this court a considerabl e and unnecessary burden. It is appropriate that
the Co-operative bear the costs associated with these volumes. In
addition, and as a mark of the court’s displeasure at the conduct of Mr
Buitendag, it will be ordered that he is not to receive a fee for perusing
the record.
[64] The following order is made:
(a) The appeal is dismissed.
(b) The respondent is orde red to pay the costs of the 4 volumes of
correspondence and the 3 volumes of additional documents including the
appellants’ attorney’s fee for perusing these volumes.
(c) The appellants are ordered to pay the costs of the appeal
(excluding the costs referred to in para (b)) such costs to include the
costs consequent upon the employment of two counsel.
37
(c) It is ordered that Mr Buitendag, the respondent’s attorney of record,
is not to receive a fee for perusing the record from either the appellants
or the respondent.
________________
B R SOUTHWOOD
ACTING JUDGE OF APPEAL
CONCUR:
HARMS JA
CAMERON JA
CONRADIE JA
LEWIS JA